Clive Palmer's fight with Citic Pacific

It's been a big week for Clive Palmer, as befitting the man. He's had the Prime Minister Tony Abbott and the Federal Government running in circles over his on again, off again pledge to kill the carbon tax. But it's the fight with his business partner, the Chinese government owned Citic Pacific, that has really piqued interest.

Transcript

icon-plusicon-minus

MARK COLVIN: It's been a big week for Clive Palmer, as you might say befits the man.

He's had the Prime Minister Tony Abbott and the Federal Government running in circles over his on again, off again pledge to kill the carbon tax.

But it's the fight with his business partner, the Chinese government-owned Citic Pacific, that's really piqued interest.

Our business editor Ian Verrender joins me now.

Let's go back to the beginning on this. Clive Palmer owned the rights to the iron ore under the ground in a particular part of Western Australia, and he did a big deal with this Chinese company, and things have started to gradually unravel after that?

IAN VERRENDER: That's right.

This was a deal that was negotiated back in 2006, and Clive Palmer got $415 million up front, as a result of that deal.

And the Chinese government-owned company, a company called Citic Pacific, agreed to pay him that money plus an annual royalty every year for the ore that came out of the ground.

Now the problem is, that that mine, the Chinese decided to build it themselves, and it's been an absolute, unmitigated disaster.

The initial cost estimates to build that mine were $2.5 billion, and it should have been built by around about 2010.

Now what's happened is, the costs have blown out to $10 billion, and the mine is about four years behind schedule.

MARK COLVIN: So it's already four years late, and another four years to go?

IAN VERRENDER: No, it's finished now. So they're finally, they've just started, well, around about Christmas time they shipped their first lot of iron ore out of there.

MARK COLVIN: But it's cost them four times as much as they expected?

IAN VERRENDER: That's right, yeah.

And so, on that basis alone, it would be uneconomic, really. If you'd wasted that much money on the construction, it wouldn't make money for you.

But on top of that, the price of iron ore has collapsed. It was about $180 a tonne, back in 2010. It's now down to just above $90 a tonne.

MARK COLVIN: About half.

IAN VERRENDER: That's right.

And in addition to that, the kind of ore that comes out of this mine is, it's an ore known as magnetite iron, as opposed to hematite, which is the ore that BHP, Fortescue, Rio Tinto - that ore is easier to just get out of the ground and you put it straight onto the ship.

The stuff in this mine that, which is called Sino Iron, the company that's up in Western Australia which is the Chinese iron ore, is much more difficult to process, much more costly.

So you add all those factors in, and the Chinese are losing a lot of money in this iron ore mine.

MARK COLVIN: And, so they're feeling poor, and they are now not feeling too happy about having to pay Clive Palmer all those royalties.

IAN VERRENDER: That's right.

MARK COLVIN: But they have this side dispute, over $12 million with him. That surely is just a drop in the bucket?

IAN VERRENDER: It is. But it's a legal skirmish that I think is designed to get at Clive Palmer.

MARK COLVIN: They're trying to find an Achilles' heel?

IAN VERRENDER: Exactly.

MARK COLVIN: So what does that involve, for those who haven't followed it intricately?

IAN VERRENDER: Well this particular part of the dispute revolves around the port, where the iron ore is shipped out.

And under an agreement, the Chinese tipped in $23 million into this administration fund, and the money was only supposed to be used for operating the port.

Now, up until now, Clive Palmer has never admitted anything at all about that money.

But $12 million of that money was actually withdrawn and used for other purposes.

Now, Clive Palmer's company, Mineralogy, was responsible for operating the port, even though the Chinese put the money in for the administration.

But he signed an agreement which said that the money would only be used for operating the port.

And in the National Press Club this week he admitted that some of that money had been used for his campaign funds for the federal election.

MARK COLVIN: And then last night, when he was asked to expand on that, he wasn't too happy?

IAN VERRENDER: No he wasn't. He stormed out of an interview with 7.30 Report's Sarah Ferguson, who put the questions to him that were put to him at the National Press Club.

He started to explain yet again that, look, if the money's gone in there, it's my money and I can use it how I like. If your employer pays you, well, you know it's for services rendered.

But when she tried to press him on the question he got very angry and left.

MARK COLVIN: He didn't actually use the phrase "don't you worry about that", but there were echoes of his old mentor Joh Bjelke-Petersen in that sense?

IAN VERRENDER: There were indeed, and you know, storming out of a meeting like that, as Joh used to do.

MARK COLVIN: What are the next legal or political steps on this?

IAN VERRENDER: Well look, Clive Palmer is a man who has made a lot of money over the years by looking at loopholes in the law, by looking at people who make tiny little mistakes in either contracts that are written, or in what they've said.

And I think it was a very uncharacteristic mistake that he made in the National Press Club the other day to admit that that money had been used.

So, I'm sure he'll put up a very strident legal defence and all this.

But at the heart of the, the major problem here is, he's claiming that the Chinese owe him $500-600 million in unpaid royalties, which is true. And I think they're looking for any excuse to not pay him. And this is a little skirmish which could cost him quite dearly.